No Burgers for Baucus: The Case for Long-Term Insurance as Part of Medicare Reform

The Baucus healthcare “reform” bill, cobbled together in the US Senate, is partially funded by future “cost savings” from Medicare and Medicaid. “I’d gladly pay you Tuesday for a hamburger today,” says Mr. Baucus as Mr. Wimpy. Medicare and Medicaid are already going broke without borrowing from these vital programs. Mr. Wimpy will be back on Tuesday, asking for another hamburger that he will surely pay for on Friday. No, really.

Here’s an idea. Instead of piling new fiscally irresponsible programs on top of old ones, the government should put a program like Medicaid on a sound fiscal footing first. There should be no burgers for Baucus until the government pays its tab. One sensible way to help save Medicare is through a system of universal long-term care insurance.

The Congressional Budget Office estimates that 2009 Medicaid spending on long-term care – that is, nursing-home care – will reach $66 billion, or about one-third of Medicaid’s total spending on benefits. From here the cost is only going up – way up. As a result of demographic pressures, the elderly population is scheduled to increase at a rate four times greater than that of the overall population. Experts project that by the year 2025 American nursing homes will run out of Bingo cards and the supply of volunteer piano players who can sing “You are my Sunshine” will be completely exhausted.

Not only do the demographics put entitlement programs for the elderly, including long-term care, on an unsustainable path, but the way our society currently pays for long-term care is irrational and inequitable. As anyone who has gone through the long-term care process with an elderly family member knows, the heart-wrenching experience of watching a loved one slowly fall apart is often accompanied by bankruptcy. How do you tell someone in the process of losing his physical and/or mental capacity that the dream of passing on some hard-earned savings to children or grandchildren has been swallowed up by a hated nursing home? Often you don’t, adding another indignity to old age by just keeping grandpa in ignorance of his shocking poverty.

The current system is disproportionately hardest on the middle class. A poor or profligate person has little or nothing to lose. The state simply picks up his nursing home tab. Wealthy families hire lawyers to make trusts to shelter significant percentages of family money, and given their financial security, can annually gift away their money to would-be heirs during the course of many years. Middle-class people, however, with net worth of, say, $100,000 to $300,000, cannot afford to make substantial gifts to children or grandchildren, nor do their resources justify the establishment of trusts. The first bills will hit when these middle-class folk require assisted living. By the time they need nursing care, if they live in New Hampshire for example, they will be spending about $96,000 per year. The most frugal and responsible members of the middle class are getting disproportionately abused by the system.

But the unfairness doesn’t end here. Two seniors crammed into the same small curtain-divided room might be getting the same level of care, but if one is on Medicaid and the other paying out of pocket, then the nursing home is accepting as payment about half for the Medicaid patient what it demands from the private payer. In other words, the hapless seniors draining their life savings are subsidizing all of the Medicaid patients in the home. The government, as it turns out, is a deadbeat when it comes to payment, and makes fiscally responsible citizens who foolishly hoped to pass some money on to their kids pick up the balance. By threatening to find cost “savings” from Medicaid and Medicare, current legislation churning through Congress threatens to worsen this already intolerable situation.

If only our political leaders would act like adults rather than teenagers with their parents’ credit cards — or is this image unjust to teenagers? At least teenagers grow up. Rather than rob a system going broke Congress should fix it by requiring every American either to buy a long-term care insurance policy or, alternatively, to pay into a government-run long-term care insurance trust fund in which everyone contributes on a sliding-scale basis depending on income.

Actuaries and accountants could make such a system self-sustaining. For once, we could pay as we go. This long-term care trust fund should be kept in a lock box booby-trapped to blow up if touched by the fingers of politicians. Maybe depositing all of the funds into a Swiss bank account, beyond the reach of American lawmakers, would do the trick. Although flush with cheese, the Swiss are not known for loaning out hamburger money.

Regardless of what we call it, Medicaid for long-term care is in fact an insurance program, albeit an irrational one that is increasingly paid for by government debt, discourages personal savings, adds legal cost associated with gaming the system, and disproportionately hurts the middle class. Converting the long-term care portion of the Medicaid program into a more conventional insurance plan is the first step towards making it fair, efficient and fiscally responsible.